The brand Cheerios is co-owned by Nestle and US company General Mills, but operates under Nestle for consumer recognition purposes in the UK. Consumers associate Nestle with high quality products and worldwide recognition. Cereal Partners is the UK manufacturer name with their aim being to provide “high quality, great tasting healthy products” (Nestle, 2012). Cereal Partners UK has established itself as the second largest manufacturer in the UK, with over 25% of a market that’s worth more than ?1. 3 billion. (Cereal Partners UK, 2012).
Cereal Partners UK makes breakfast cereals from raw ingredients which are grown naturally and are the source of many brands most noticeably brands such as shredded wheat, shreddies and for this analysis cheerios. The wheat used in cheerios and other products are sourced from farms across the UK providing “local employment opportunities”, and “premium quality products” (Cereal Partners UK, 2012). Cereal Partners believes in high standard of ethics with frequent charity donations as well as supporting and funding community products.
By Nestle using Cereal Partners UK as their manufacturer, they are ensuring the premium quality and high stock that is associated with Nestle worldwide. Financial Performance: Cheerios sits in a highly competitive but lucrative market. The breakfast cereals market has increased in value by 20% to ?1,582 million between 2007 & 2012 and the market is predicted at current consumption/sales figures to increase by a further 19% in value to ?1,883 in the next 5 years. In 2011 Cheerio’s had a 3% market share, the same percentage as rivals Kellogg’s shredded wheat.
Weetabix and Kellogg’s Special K were the highest branded products with an 8% market share value each (Mintel, 2012) Product: Cheerios has a variety of four products; Honey cheerios, Oat cheerios, Original cheerios and their newest product chocolate cheerios. It is also part of the Grab2Go Nestle product range which features multipacks of 5 individual bags aimed for the ease of consumers on the go, which can be stored in a working bag or lunchbox easily (Nestle, 2012). One of its weaknesses is its product range, with other competitors having advantage of a much larger variety.
With the market expected to grow sustainably over the next 5 years, this could be a potential opportunity or a threat to cheerios, which will be analysed later on. Pricing Strategy/Place: Cheerios have a set retail price of ?2. 29 for a 375 gram packet of Original, Honey and Oat cheerios. The new product of Chocolate cheerios is available at the same price but for a slightly smaller 330 gram packet, whilst GrabtoGo multipacks are available at ?1. 99 for a 125 gram bag.
These products are all are available at high commercial supermarkets Tesco and Sainsbury, with the latter currently offering a price promotion of two packets of cheerios for ?4. (Tesco and Sainsbury’s 2012) Consumer: The cheerios ‘Original’ product was designed to target a wide range of consumers within the breakfast cereal market, providing a ‘healthy start to the day’ with nutritional and whole grain benefits (Nestle, 2011). The GrabtoGo product is designed for children in their lunch box as a healthy alternative to products like crisps or confectionary goods, or adults with limited time availability and therefore more convenience.
New chocolate cheerios is an innovative product to modernise cheerios with other competitors who have created different flavour products/modernised such as weetabix with their chocolate and mini’s range (weetabix, 2012). Promotion: Nestle has spent ?8. 8 million on advertising its breakfast products in 2011, a decrease of 67% since 2007 (Mintel, 2012). However under the cheerio brand it has pushed their ‘get set, go free’ marketing campaign, delivered by celebrity Tom Daley aimed at children between the ages of 6-16 which offers them a chance to try a range of sporting activities by collecting tokens. Nestle, 2012) Cheerios packaging promotes healthy eating and nutritional values and Nestle were one of the first companies to include guideline daily amounts (GDA) labels on the front of its cereals. This shows the amount of calories, fat, sugars, saturates and salt per serving. Cheerios across the range are low in fat, especially saturated fat and contains vitamins B and C as well sufficient fibre and whole grain values. Every Nestle product has a distinctive green banner across the top of every box, providing a connection with the consumer and making sure the “whole grain” factor is memorable.
Holay, 2012, discusses the connection between products like cheerios with BFY attributes (Better-for-you), suggesting that performance, energy levels and concentration will improve performance especially in the morning when physiologically our bodies are not at full capacity. This is one if its unique selling points, nutritional value whilst providing the user with all the relevant information for a healthy diet and therefore lifestyle. Marketing Audit: External Audit: Market: The Breakfast cereal market is highly competitive with breakfast cereals eaten by 91% of consumers over all ages and socio-economic groups.
Cold cereals such as Cheerios still dominate the cold cereal market with sales of ?1,340million in 2011, despite an 8% decline between 2007 and 2011. However volume sales are falling as consumers switch to porridge and other means of breakfast alternatives. Hot cereals had sales of ?170million in 2011 with porridge/porridge pots increasing sales volume by 15% between 2007 and 2011 (Mintel, 2012). One major influence on the market’s cost structure is that raw material prices have continued to increase.
This was highlighted in a report by Richard Whiting at the end of 2008 due to poor harvesting conditions and since then the cost of wheat has continued to rise (Poultry World, 2008). So far companies have not handed this on to consumers. However in a highly competitive industry where price and quality is essential to consumer behaviour, to continue with the same quality products through the same supplier, if prices continue to increase the end price may also increase. Distribution costs have also increased due to significant fluctuations in the price for petrol and diesel.
This may also affect consumers directly if firm’s profit margins continue to shorten, affecting the final retail price. Competitive Audit Increasing innovation and promotion by competitors such as Kellogg’s, has increased market competition where firms aim to retain and increase market share. This includes the advertising of events such as the Olympics, health/nutrition benefits of the core product and new packaging ideas ranging from children to mature adults. Furthermore major players in the market such as Weetabix and Special K account for 16% of market share.
Weetabix increased its advertising spend in the UK by 46% to promote new products and their core benefits to consumers (Marketing week, 2012) whereas as previously mentioned, cheerios has cut back its advertising year on year since 2007. Cheerios is experiencing significant competition from ‘on the go’ products, such as yogurts, cereal bars and breakfast biscuits. Consumers are becoming increasingly time pressured and need more convenient products. Cereal bars such as Kellogg’s special K, also competitors to cheerios in the cold cereal market, are available for ?2. 29 and ?2. 49 and come in a pack of five. Tesco and Sainsbury’s, 2012) There is also significant competition from own label cereals, where the market has increased by 7% year on year since 2007 with a market value of ?325 million in 2012 over 1/5th in the market size. (Mintel, 2012)
For example a 454 gram box of weetabix, a close rival to cheerios, can be bought for ?2. 17 at both Tesco’s and Sainsbury’s. Tesco’s own ‘wheat biscuits’ however can be found at ?1. 47 for the same size box, representing a cut of ?0. 70 whilst providing a very similar product. Another example is Kellogg’s cornflakes where a 500 gram box costs ?1. 8 in Tesco. However, Tesco’s own ‘cornflakes’ cost ?0. 31 for the same size box. Customer Audit: Breakfast cereals are in a highly competitive market meaning there is a wide variety of products and therefore choice for consumers. The products are also consumed by people of all ages, with different companies targeting different ages and genders. Bainbridge (2010) emphasises that Government healthy-eating campaigns have boosted sales of breakfast cereals, making consumers aware of their psychological and physiological values in nutrition and energy.
Cheerios itself for example describes its products as a “tasty” cereal with core “nutritional benefits”. The healthy eating campaigns have reduced the number of consumers choosing high sugar breakfast meals such as jam on toast and changed the market into a more healthy approach. Cheerios and its main rivals are all sold in big retail chains across the UK and therefore accessibility of these products play a major influence in the sales. Nestle as a brand sells many other products in these retail outlets so therefore the relationship between suppliers and themselves needs to be a mutual understand of price and quantity.
This concept is also true with consumers and the brand identity: consumers want a match between quality and price which satisfies the producers. (Blythe, 2008) Consumers value the importance of a product being fresh, and cheerios promotes this with its “original O’s” slogan being fresh and crunchy. 78% of consumers would like to see new packaging on breakfast cereal products to increase the longevity of the product, with a further 64% seeing resalable packaging as a viable alternative. This has been used with confectionary products such as Cadburys with their “cluster” product range. Mintel, 2012) SWOT Grid Strength (Internal)Health benefits (with whole grain, vitamin B and C*)Backed by Nestle, a multinational brand with brand loyalty & contacts. (retailers, suppliers & existing consumers)Packaging *brand recognition. | Opportunities (External)Market value sustainably increasing with breakfast cereals consumed by 91% of consumers.
Cold cereals still dominating market. Government back healthy eating. | Weaknesses (Internal)Lack of promotion/Ambition. Limited product range *only cold cereals. Expensive compared to own brands and competitors. Threats (External)Strong powerful competition from own brands. Increasing market for hot cereals. Increasing costs of raw materials and distribution costs. Brands with higher market share (Weetabix + Special K 8% each). | SWOT Analysis As identified, one of cheerios major strengths is the backing of multinational company Nestle. Nestle is a world renowned brand that produces high quality products at premium but affordable prices. It promotes itself as “the world’s leading nutrition, health and wellness company” with its slogan “Good Food, Good Life” (Nestle, 2012).
With an opportunity selected that breakfast cereals as a market is expanding (with 91% of consumers already eating breakfast cereals daily), backed by such a brand such as Nestle which over years has built links to key retail stores, suppliers and a huge existing consumer database, other avenues such as hot alternatives, identified as a major threat, could become an realistic opportunity. Furthermore, Nestle as a major brand can benefit from economies of scale and may therefore find ways in an every changing technological environment of producing products cheaper through high scale production/R&D.
Cheerios has a limited product range with only four products available to consumers, and only up to their new chocolate product have not been innovative with their products. In a market where cheerios is dominated by major players who have a wider product range appealing to a wider consumer audience, who are also willing and able to spend money on new product launches and with that advertising, the brand needs some clarity on whether its content with a market share of 3% or whether it can look into a niche in the market and do so with the backing of Nestle.
Nestle has reduced its advertising by 67% since 2007 while other products such as weetabix have increased the money spent on key areas of their marketing mix. One of the major successes of the breakfast cereals market is its health benefit and nutritional aspect which is backed by Government’s healthy eating campaign. Cheerios is known for its clear, informing green banner at the top of every packet which informs the consumer of its nutritional and whole grain benefits, as well as providing the consumer with guideline daily amounts so they can relate the product in accordance to their diet requirements.
It is also high in vitamins B and C. Brand loyalty of cheerios is seen as a great strength because the product is not the cheapest on the market but linking in with health benefits and brand recognition, it affects the consumer buying process. However in a market where competition for brand and price is so big, Nestle may need to consider whether relying on brand loyalty and nutritional recognition is enough for the future of cheerios, or should other avenues such as a new product range, new advertising campaign, or a new target market be explored.
Cheerios is facing extreme competition from own brand labels, and this threat is a big concern especially in the external environment where the power of the recent recessions has affected consumer purchasing power and disposable income of non habitual products. The market for own brand breakfast cereals has increased 7% year on year since 2007, and now has over a fifth of the market share with sales at ?325 million. Nestle needs to consider why a consumer may choose their products at ?2. 29 for a 375 gram packet of cheerios over Tesco value cornflakes for example at ?0. 1 for a 500 gram box. Likewise, cheerios only has four cold breakfast cereals products and although cold cereals still dominate the market, hot cereals sales have increased significantly over the last 5 years. With the opportunity of the market expanding, could the increased competition be a benefit for Nestle and cheerios in making them assess the current performance and increase their marketing mix to keep up with the competition and not fall behind? A cost-benefit analysis could be carried out to review their current strategy on cheerios.
So far increasing raw material costs have not affected the market for breakfast cereals, with firms willing to keep costs relative to supply costs. However if suppliers keep increasing costs, firms will have to ultimately hand that cost onto the end consumer. With competition as intense as it is in the cereal market, price plays a major part in the consumer decision process. With the support of Nestle, cheerios could use this to their advantage and may not suffer as much as other smaller products by investing more into the cheerios brand and using predatory pricing to ease of competition.
It may also use its relationship with retail stores and link its existing products with breakfast cereals to promote further the Nestle slogan and any new product range. Another external environment factor affecting the price to the end consumer is distribution costs. With the price of petrol and diesel rapidly increasing, firms will have to review their distribution methods or run the risk of a higher cost and therefore higher price to the end consumer. Cereal Partners UK is the main supplier of cheerios and is the second largest manufacturer in the UK.
One of its major advantages is the ability to supply high quality products at high quantities, with the source of the ingredients coming from inside the UK. This could be an advantage to Nestle and the cheerios brand while other fare trade companies for example having to source their products from other areas in the world increasing their costs. With the breakfast cereal market set to increase in value by 19% in the next 5 years, Nestle will need to consider whether a 3% market share in cheerios is sustainable or whether they willing to be more innovative and combat a higher percentage.
With hot cereals becoming more popular as well as other convenient alternatives such as cereal bars or yogurts, there are certainly opportunities where firms may try to combat and increase their market share. The main element holding cheerios back is its limited product range and with that its drop in advertising compared to rival firms. With other products becoming cheaper consumers may be brand loyal but will always be aware that other cheaper products exist in the market which may tempt them.